Simply Getting Stiffed On A Judgment May Be An Inequitable Result


What happens when you sue someone who is judgment proof?  One solution may be to ask the trial court to amend the judgment to add additional judgment debtors.  Now, it may seem unusual to be able to add judgment debtors who were not part of the litigation.  The procedure, however, is equitable and is based on the theory that the court isn’t really adding anyone, but simply inserting the correct judgment debtors.  This is possible if the additional debtors are the alter egos of original judgment debtor.

To succeed in adding additional judgment debtors, the plaintiff/creditor must persuade the court that the following three conditions are met:

  • the parties to be added as judgment debtors had control of the underlying litigation and were virtually represented in that proceeding;
  • there is such a unity of interest and ownership that the separate personalities of the entity and the owners no longer exist; and
  • an inequitable result will follow if the acts are treated as those of the entity alone.

In a decision released yesterday, the Second District Court of Appeal held that when a plaintiff can satisfy the first two conditions, it would be inequitable as a matter of law to prevent the plaintiff from collecting by treating the proposed additional debtor as a separate entity.  Relentless Air Racing, LLC v. Airborne Turbine Ltd. Partnership, 2013 Cal. App. LEXIS 1058 (Cal. App. 2d Dist. Dec. 31, 2013).  The problem with this reasoning is that it will almost always be the case that the creditor is seeking to add judgment debtor(s) precisely because it hasn’t been able to collect from the original judgment debtor(s).

For more on alter ego, see:

Alter Ego – “Easy To State But Difficult To Apply”

What Doth The Alter Ego Doctrine Require Of Thee, But To “Do Justice”?

Alter Ego And The Internal Affairs Doctrine

Got Judgment? It May Not Be Too Late To Add A Judgment Debtor

Alter Ego – It’s Not Just For Corporations

Finally, it is worth noting that the original judgment debtor in this case was a limited partnership, not a corporation.


Written by:

Published In:

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Allen Matkins Leck Gamble Mallory & Natsis LLP | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »

All the intelligence you need, in one easy email:

Great! Your first step to building an email digest of JD Supra authors and topics. Log in with LinkedIn so we can start sending your digest...

Sign up for your custom alerts now, using LinkedIn ›

* With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name.